Combating payment fraud in an increasingly digital world

The rise of digital payment channels has brought new opportunities for bad actors to target customers and businesses.

The adoption of digital payment channels has been widely regarded, with retailers gradually integrating this technology into their businesses over the years. The use of such technology provides more options and greater convenience for customers, as well as greater flexibility for retailers as to how they operate.

Developments in the retail landscape have been remarkable amidst the evolution of payment channels with their digitalisation and expansion. Whilst these efficiencies are certainly beneficial for both retailers and customers, it cannot be denied that any technology being created comes with possible risks and threats. 

In talking with Retail Asia in a recent podcast, LexisNexis Risk Solutions Director for Market Planning, Fraud & Identity – APAC Vo Thanh Tai, shared his insights on the growing digitalisation of payment channels, as well as the concerns around financial innovations.

Amidst the rapid adoption of such technology, Vo observed that Asian consumers have adopted digital payment channels at a faster pace than in any other region since the introduction of these channels. He said that these channels, which include digital wallets, QR codes, peer-to-peer transfers, and the Buy Now Pay Later scheme, amongst others, have become embedded in businesses as they offer consumers more options. 

Digital payment channels are advantageous when it comes to transaction speed, lower transaction costs, and convenience in buying goods and services online. It is more financially inclusive for customers and also secures higher conversion rates for businesses.

Despite these benefits and the wide adoption of digital payments, Vo mentioned that consumers still have concerns about such financial innovation, particularly in the aspects of security, data privacy, identity theft, and fraud. He said that the increase in the number of commercial channels has also created new opportunities for cybercriminals as they have found new ways to target both businesses and consumers.

Research by LexisNexis Risk Solutions noted that such a trend is expected to continue as more consumers adopt digital payment channels. Vo mentioned that some businesses and consumers may not be fully prepared for the risks that come with the new digital channels.

“It's very important that consumers understand the risks and have conducted their own research when using new digital payment options. Fraud incidents and losses have increased significantly in the last few years,” he said.

Cybercriminals have exploited this digital transformation process amidst spikes in fraud and scams in various forms. Looking into the correlation of these situations also means looking into the larger picture of the expansion of digital channels.

Businesses that are operating in multiple countries or markets may join selected marketplaces to expand their commercial channels. However, merchants and consumers rely on the marketplaces to provide security and all the safeguards to prevent fraud on their platform. This would mean that merchants and consumers have very little direct influence on the internal security measures at these marketplaces.

Bringing security and awareness to fraud

Meanwhile, Vo explained that fraud in the digital realm has become more sophisticated. The impacts are felt more when the focus shifts to the financial implications of such attacks.

He added that in order to prepare for the challenges, it is essential to understand the one key goal of cyber criminals—to make the most money with the least effort. He noted that businesses should consider implementing a multi-layered approach to combat the more sophisticated forms of fraud.

This approach should also include three key elements: digital intelligence to create a more accurate predictive fraud models; behavioural analysis to ensure normal users are identified against a fraudster or bots, and adaptive or contextual authentication to create a more seamless experience for normal and trusted users.

However, this is not an easy feat. Vo mentioned that the biggest challenge in fraud prevention is analysing links and making sense of hundreds of data attributes and signals

“There's so much data and intelligence available that it can be overwhelming… adding to this complexity is the question of how businesses build in sufficient safeguards to prevent fraud but concurrently provide a more seamless experience to the customer,” he said.

He added that organisations could implement measures to protect their business and customer profiles through a strong security infrastructure, fraud prevention technology, and education & fraud awareness.

“The good news is that authorities in the regions have been more active in defining more specific frameworks and guidelines around fraud prevention and have implemented public initiatives to enhance fraud awareness,” Vo said.

However, companies should still leverage technology as it plays a critical role in combating fraud. They also need to ensure compliance on this aspect through meeting key objectives such as regulatory requirements, as fraud models are not static—what worked well in the past may not meet today’s standards.

“As internal and market conditions change, this model should be updated to ensure that they are working effectively at operational level and remain compliant with new regulations,” Vo said.